Competition, Protectionism and Monopolies

After Grupo Lala decided to close the operations of its dairy production plant in Costa Rica, a debate began over whether Dos Pinos' dominance in the local market was due to protectionist policies or to the brand positioning, quality and price of its products.

Friday, December 4, 2020

Although at the beginning of 2019 Lala announced that it had invested $14 million in the purchase of high technology machinery and in the expansion of its dairy plant in San Ramón, province of Alajuela, on December 1, 2020 it informed that they decided to close operations.

The argument of the business group of Mexican origin was that the capital released by this closure will be reallocated to our businesses in Nicaragua and Guatemala, where there is more potential to achieve sustainable and profitable growth.

The case of Grupo Lala is similar to that of Borden, Nestlé and Unilever, who in the past also decided not to continue betting on the Costa Rican dairy market, which for decades has been dominated by the national company Dos Pinos.

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Adrian Mora, business consultant with experience in the ice cream sector, told that "... there are some barriers that make difficult the entrance of new participants to the market, among them, the good relationship and the support that Dos Pinos offers to the traders, the positioning of this national brand, and the years of experience and investment that the Costa Rican cooperative is accumulating."

Regarding the closing of operations of Lala, Mora added that "... 'when one sees that such a big Mexican company enters the country and invests an amount of $20 million in its product plant, the reading is that they were serious. However, in order to reach a certain maturity in the national market, an initial investment and constancy of at least five to ten years is required."

According to Jorge Pattoni, former general manager of Dos Pinos, "... to compete with this company is to face more than seven decades of investments that go from the quality of the product in the farms, to the marketing, distribution and innovation."

For the Chamber of Industry and Commerce Costa Rica - Mexico (Cicomex), the domain of Dos Pinos does not have characteristics of a natural monopoly, but rather is the product of protectionist policies.

Santiago Aguilar, executive director of Cicomex, explained to that "... there is a great concern about the decisions that companies, such as Grupo Lala, are taking to abandon their operations in national territory, to establish them in other countries of the region, in response to a search for better profitability and legal security."

Aguilar said that "... the companies that make up Cicomex express their constant concern about excessive regulation and protectionism, in the face of various processes in the area of customs, tariffs, phytosanitary and infrastructure construction, which hinders the production processes of companies established in the country, and the current context is unsustainable to continue bearing these production costs."

See article from "Failure of Grupo Lala in Costa Rica: a new chapter on the impenetrable milk market dominated by Dos Pinos" and from "Costa Rica-Mexico Chamber of Commerce attributes Lala's departure to 'government protectionism."

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